These 2 Popular ETFs Look Similar: 1 Could Carry Far More AI Risk

Owning 241 stocks sounds more diversified than owning 102. Yet the fund with more than twice as many holdings can still leave investors considerably more exposed to one technology, one spending cycle, and one particularly famous chipmaker.

That’s the surprising difference between TD Global Technology Leaders Index ETF (TSX: TEC) and iShares Nasdaq 100 Index ETF (CAD-Hedged) (TSX: XQQ).

Both hold the biggest tech stocks, including FAANG. Both charge a 0.39% management expense ratio (MER). Each has also accumulated more than $5 billion in assets. They may look like interchangeable ways to own large technology companies.

The thing is, they aren’t.

The difference

XQQ tracks the 100 largest non-financial companies listed on the Nasdaq. That naturally creates substantial technology exposure, but it also includes consumer, healthcare, industrial, telecommunications, and other businesses.

TEC specifically tracks global companies connected to technology. Its broader list of 241 holdings therefore doesn’t necessarily provide broader economic diversification. Here’s how the two funds compare:

The strangest number may be Nvidia’s weighting. TEC has approximately $13 invested in Nvidia for every $100 placed in the fund. XQQ holds closer to $9.

AI risk appears

Neither ETF publishes a neat “AI exposure” percentage. Artificial intelligence (AI) reaches across chips, cloud computing, software, advertising, data centres, and consumer devices. However, sector and position weights provide useful clues.

TEC places almost 80% of its portfolio in technology. Its leading holdings also include Nvidia, Microsoft, Broadcom, Alphabet, Meta, and Micron Technology. Those companies are either building AI infrastructure, selling the chips underneath it, or spending heavily to create AI products.

That could produce exceptional growth if demand continues expanding. It also creates a common risk. Should customers reduce AI spending, chip supply catch up with demand, or investors decide current valuations assume too much future growth, several of TEC’s largest positions could decline together.

XQQ would hardly escape. Its Nasdaq-100 portfolio remains heavily influenced by the same mega-cap companies. However, its lower technology allocation and smaller Nvidia position provide slightly more distance from the centre of the AI trade. Investors learning how to invest in ETFs should look beyond the number of holdings. Diversification depends on what those holdings do and how heavily each one is weighted.

Don’t just avoid risk

Greater AI exposure isn’t necessarily bad. An investor who believes it will produce decades of productivity gains may prefer TEC precisely because it places more money behind that thesis.

The fund also reaches beyond the Nasdaq, allowing it to hold technology companies from Europe, Japan, and other markets. That provides some geographic diversification even while sector concentration remains high.

Valuation currently adds an interesting wrinkle. TEC trades around 31.1 times portfolio earnings, while XQQ trades closer to 39.8 times. XQQ has less direct technology concentration, but investors are paying a higher average earnings multiple for its holdings.

Check the rest

Someone holding an S&P 500 ETF may already have substantial positions in Nvidia, Microsoft, Apple, Amazon, Alphabet, Broadcom, and Meta. Adding TEC could make the portfolio look busier without making it much more diversified.

That overlap matters particularly inside a TFSA, where investors may be tempted to chase whichever technology theme recently produced the largest gains. Tax-free growth remains tax-free even when it arrives from a boring, balanced portfolio.

Investors comfortable with higher volatility could use TEC as a smaller satellite position. Those wanting large U.S. growth companies with somewhat lower technology concentration may find XQQ the more balanced choice, although it’s still far from a low-risk fund.

Bottom line

TEC and XQQ share many of the same headline companies, identical MERs, and similar asset levels. The important difference sits underneath.

TEC’s nearly 80% technology allocation and 13% Nvidia position give investors more concentrated exposure to AI-related spending. XQQ still carries meaningful AI risk, but spreads more of its portfolio across non-technology businesses.

I wouldn’t avoid TEC simply because that risk exists. I’d make sure I was being paid for taking it, and that the rest of my portfolio wasn’t already making the same bet.